The following table is the balance sheet for Bank A: Assets Risk weight factors
ID: 2804839 • Letter: T
Question
The following table is the balance sheet for Bank A:
Assets
Risk weight factors
Risk adjusted assets
Cash
120
0%
U.S. Treasury Securities
240
0%
Bank reserves
60
0%
U.S. government agency securities
20
20%
Mortgage loans
350
50%
Consumer loans
150
100%
Construction loans
10
100%
Corporate debt securities
50
100%
Total
1000
Liabilities and Equity
Transaction deposits
700
Saving accounts
100
Negotiated CDs
50
Repos
70
Subordinated debt
20
Liabilities
940
Common equity
30
Retained earnings
15
Preferred stocks
15
Equity
60
(1) Calculate Common Equity Tier 1 capital. (0.5 point) =
(2) Calculate Additional Tier 1 capital. (0.5 point)
(3) Calculate Tier II capital. (0.5 point)
(4) Calculate the credit risk-adjusted assets using the risk weight factors. (0.5 point)
(5) Calculate the total capital. (0.5 point)
(6) Calculate CET1/ Credit risk adjusted assets
Tier I / Credit risk adjusted assets
Total capital / Credit risk adjusted assets
According to table 13-4, determine Bank A belong to which zone? (2.5 points)
Assets
Risk weight factors
Risk adjusted assets
Cash
120
0%
U.S. Treasury Securities
240
0%
Bank reserves
60
0%
U.S. government agency securities
20
20%
Mortgage loans
350
50%
Consumer loans
150
100%
Construction loans
10
100%
Corporate debt securities
50
100%
Total
1000
Liabilities and Equity
Transaction deposits
700
Saving accounts
100
Negotiated CDs
50
Repos
70
Subordinated debt
20
Liabilities
940
Common equity
30
Retained earnings
15
Preferred stocks
15
Equity
60
TABLE 13-4 Spe cifications of Capital Cate gories for Prompt Corrective Action Common Equity Tier I Risk-Based Ratio Tier I Risk-Based Ratio Total Risk-Based Leverage Zone Ratio Ratio Capital Directive/Other 6.5% or above Not subject to a capital directive to meet a specific level for any capital measure 1, well capitalized and 8% or above and and and 10% or above 5% or above 2. Adequately 4.5% or above and and and and 6% or above 8% or above 4% or above Does not meet the definition of well capitalized capitalized Under 6% Under 8% Under 4% 3.Undercapitalized Under 4.5% 4. Significantly 5. Critically or or or undercapitalized Under 3% or Under 6% or Under 8% or Under 4% undercapitalized Tangible equity/Total assets 2%Explanation / Answer
1. Common equity Tier 1 comprises of a bank’s core capital and includes common shares, stock surpluses resulting from the issue of common shares, retained earnings, common shares issued by subsidiaries and held by third parties, and accumulated other comprehensive income (AOCI)
Common Equity Tier 1 capital = 30+15= 45
2. Additional Tier 1 or AT1 consists of capital instruments that are continuous, in that there is no fixed maturity including: Preferred shares, High contingent convertible securities
Additional Tier 1 capital = 15
3. Tier 2 capital is designated as supplementary capital, and is composed of items such as revaluation reserves, undisclosed reserves, hybrid instruments and subordinated term debt
Tier 2 capital = 20
4. credit risk-adjusted assets using the risk weight factors = 120*0 +240*0 + 60*0 + 20*0.2+350*0.5 + 150*1 + 10*1 +50*1 = 389
5. total capital = tier 1 captal + tier 2 captal = (45 +15) + 20 = 80
6. CET1/ Credit risk adjusted assets = 45/389 = 11.56%
Tier I / Credit risk adjusted assets = (45+15)/389 = 15.42%
Total capital / Credit risk adjusted assets = 80/389 = 20.56%
Based on the ratios calculated and the table provided, the bank is well capitalized.
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.